HMRC’s technical note on the tax implications of employees trading in shares on PISCES

Along with the 2025 Spring Statement, HMRC has published a technical note on the tax implications for companies and employees when a company has shares traded on the Private Intermittent Securities and Capital Exchange System (PISCES).

PISCES is a new type of secondary stock exchange that will facilitate intermittent trading of private company shares. It is intended that the statutory instrument for the implementation of PISCES will be laid before Parliament in May 2025 and thereafter the Financial Conduct Authority will publish its rules.

The technical note provides HMRC’s guidance on how PISCES trading events will interact with Enterprise Management Incentives Schemes and Company Share Option Plans and also sets out the tax implications for employees selling their shares on PISCES.

Readily convertible assets

HMRC has provided some useful guidance on the interaction of the application of the ‘readily convertible assets’ (RCA) rules to shares being traded on PISCES.

In respect of employment related securities (ERS) i.e. shares and securities acquired by reason of employment, on an income taxable event, the employment income tax is payable under self-assessment, with no national insurance contributions (NIC) liabilities, if the ERS concerned are not RCAs. By contrast, if the ERS are RCAs, income tax is accountable and payable under PAYE and both employer’s and employee’s class 1 NICs arise.

HMRC considers ERS to be RCAs if there are trading arrangements in existence or if such trading arrangements are likely to come into existence at the relevant time.

With reference to shares being traded on PISCES, HMRC is of the view that:

• if at the time of an acquisition of ERS, arrangements exist for the ERS to be traded on a PISCES platform, they will be regarded as RCAs, even if a trading window is not open at the time of award
• ERS acquired in anticipation of the company being admitted to PISCES (even if admission is not guaranteed) will also be viewed as RCAs, because of the understanding at the relevant time that trading arrangements are likely to come into existence afterwards.
• if ERS have been previously admitted on a PISCES platform but are not admitted at the relevant time, then provided that no other trading arrangements exist and no trading arrangements are likely to come into existence, the shares would not be RCAs. Trading arrangements would be considered as likely to come into existence, if the company has taken steps to prepare for a subsequent PISCES trading event.

EMI and CSOP

EMI and CSOP are tax-advantaged schemes provided by legislation which enables eligible companies to grant share options to eligible employees. On the exercise of such options, no income tax (or NICs) arises on the gain (or some of the gain where an EMI Option was granted at a discount).

With reference to PISCES, HMRC is of the view that:

• it is acceptable for a PISCES trading window to be a specified event to allow option holders to exercise their options provided that it is clear in the option agreement at the time the option was granted that a PISCES trading window is a specified event for the exercise of the option
• existing options cannot be amended to include a PISCES trading window as a specified event as it would be considered to be a fundamental change to the terms of the option and would result in the option being released and regranted
• similarly, the tax advantages will be lost if an option is exercised in a PISCES trading window pursuant to the exercise of a discretionary power exercised by the company
• however, the government will consider legislating for allowing existing EMI and CSOP options to be exercised on PISCES

Valuation

With respect to share valuations, HMRC is of the view that:

• it would not seek to disturb the arm’s length price agreed between a buyer and seller and that employees should be able to rely on the transaction price; however, in the case of transactions between connected parties, HMRC may review the transaction to determine the market value
• value determined in past transactions may represent market value; however, it would depend on the circumstances and the time that has elapsed since the previous transaction(s)
• normal principles of share valuation will apply in the context of determining and agreeing the market value of a share with HMRC in connection with the grant of EMI and CSOP options; HMRC notes that a discount may not be appropriate if small shareholdings are being transacted on PISCES; also, depending on the circumstances, using a different value to the transaction values on PISCES may be more appropriate, for example, if the company’s circumstances change between the PISCES event and the valuation date, or there is a lack of liquidity in the market.
• HMRC has confirmed that there will be no advance assurance mechanism to agree market values for PISCES events.

Stamp duty

PISCES transactions will be exempt from stamp duty and stamp duty reserve tax, as announced in the Spring budget.

Our comments

HMRC has provided some helpful guidance on the interaction of shares being traded on PISCES and the taxation aspects of ERS, with particular reference to tax advantaged EMI and CSOP options. Given that the PISCES platform is a new ‘exchange’ which will provide liquidity, we hope that legislation is specifically brought in to allow existing CSOP and EMI Option holders to exercise their existing options and sell their resulting shares on PISCES whilst retaining the relevant tax advantages, thereby aligning their interests with the other shareholders.

For further information contact JD Ghosh jd.ghosh@mm-k.com, Stuart James stuart.james@mm-k.com or Paul Norris paul.norris@mm-k.com.

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